Listing applications under new regime welcome when Rules take effect on 30 April 2018

HKEX Chief Executive Charles Li blogs about the new listing regime: how we got here, how our market can continue to benefit from Mainland China's liberalisation, and what the future holds for Hong Kong

The Stock Exchange of Hong Kong Limited (the Exchange), a wholly-owned subsidiary of Hong Kong Exchanges and Clearing Limited (HKEX), today (Tuesday) announced that the proposed new rules to broaden Hong Kong’s listing regime will take effect on 30 April 2018, from which date companies in emerging and innovative sectors seeking to list under the new regime may submit formal applications.

The Exchange noted in the conclusions to the public consultation on the proposed new rules that the feedback showed overwhelming support for the proposals, and added that it will implement the new rules broadly as proposed, with minor amendments to reflect comments from consultation respondents on certain details.

“After a remarkable four-year journey of careful deliberation, HKEX’s new listing regime is finally open for business. We are now at the dawn of an exciting new era for Hong Kong’s capital markets,” said HKEX Chief Executive Charles Li.

“We thank all our stakeholders for dedicating their efforts to enable these landmark reforms, which will make the Hong Kong market more relevant and even more competitive as we make Hong Kong a welcoming home for innovative companies,” Mr Li added.

As part of the reforms, the Exchange is adding three new chapters in the Main Board Listing Rules (Listing Rules or Rules) and made consequential changes to the current Rules to: (a) permit listings of biotech issuers that do not meet any of the Main Board financial eligibility tests; (b) permit listings of companies with weighted voting right (WVR) structures; and (c) establish a new concessionary secondary listing route for Greater China and international companies that wish to secondary list in Hong Kong.

The Exchange has proposed appropriate investor safeguards, recognising the potential risks associated with pre-revenue firms and those with WVR structures. These include detailed criteria for determining the suitability of applicants, a higher market capitalisation requirement, as well as enhanced disclosure requirements. For pre-revenue biotech issuers, measures would be put in place around fundamental changes of principal business and a more streamlined de-listing process to address potential “shell” concerns. For WVR issuers, safeguards include limits on WVR power and rules to protect non-WVR holders’ right to vote, in addition to enhanced corporate governance requirements.

The Exchange received a total of 283 responses to the consultation paper from a broad range of respondents representing all stakeholders.

“The consultation solicited market feedback on what we consider to be the best way forward to meet the competitive demand in the market whilst maintaining our high standards of investor protection, and it was well supported by the market,” said David Graham, HKEX’s Chief Regulatory Officer and Head of Listing.

“Accordingly, we have reviewed the market responses and made some clarifications and modifications to the Rules based on the feedback to further enhance the regime and maintain appropriate balance,” said Mr Graham.

To reflect some of the stakeholder comments, amendments being made to the proposed Rules include:

Providing more guidance on examples of what the Exchange would normally consider to be a “Sophisticated Investor” and “meaningful investment” in relation to biotech issuers;

Providing more flexibility on the exclusion of cornerstone investments and subscriptions by existing shareholders from the determination of a public float for pre-profit/pre-revenue biotech issuers;

Removing the proposal that a WVR beneficiary, or WVR beneficiaries collectively, hold less than a 50 per cent underlying economic interest in an issuer with a WVR structure at listing (on the basis that an issuer is in any event required to ensure that at least 10% of votes are available to non-WVR shareholders at general meetings); and

Requiring the Corporate Governance Committee to be made up entirely of independent non-executive directors (rather than a majority as originally proposed) to require them to make recommendations to the board on certain matters; and

Facilitating confidential filings by eligible applicants under the new concessionary secondary listing route.

Given the specialised nature of the biotech sector, the Exchange is in the process of forming a Biotech Advisory Panel consisting of industry experts to advise and assist the Exchange in its review of listing applications from biotech firms applying under the new regime. As its name suggests, the panel’s function will be advisory and members of the panel will be consulted on an individual and “as needed” basis.

As stated in the consultation paper, the Exchange had earlier received feedback from a number of stakeholders that there may be legitimate commercial and competitive reasons to permit corporates to hold WVRs. The Exchange plans to launch a separate consultation by 31 July 2018 on this matter.